ABN AMRO’s Asset Management Business: A moment of truth for Barclays

Looks like BoNY M will have to update its list of trillionaires.  Number one UBS ($2.016t) is being trumped by Barclay’s / ABN AMRO ($2.058t).  But the difference is “razor thin” at a mere $42 billion (a tad larger than the GDP of Kenya for those keeping score at home).

While it’s nice to manage more assets than the GDP of the UK itself, some analysts are suggesting that Barclays isn’t actually that interested in ABN AMRO’s asset management business at all.  One banker who asked not to be identified told Pensions & Investments yesterday:

“It’s not a great fit…BGI is passive and quantitative, while ABN AMRO is active fundamental. Picking up ABN AMRO’s business doesn’t do much for what BGI is trying to do.”

As regular readers know, we’re not equity analysts.  And we have no inside information to share with you on this.  But we don’t think Barclays should be so quick to dump ABN AMRO’s asset management business just because it’s “active”.

Hedge funds are the quintessential actively managed funds.  In November, Blake Grossman, CEO of BGI told the Financial Times:

“The notion that there is a traditional way of investing that is long only, and then there is hedge funds, is crazy. We’re seeing real convergence. We’re getting mandates to employ some degree of short-selling, some degree of derivatives . . . If you look out five years, there will be much less of a divide between what’s considered a hedge fund and what’s considered a traditional strategy.”

Still, there’s no question about it, Barclays is “passive and quantitative”.   After all, BGI controls 60% of the US ETF market.  And BGI has published several well-read white papers poking holes in the way active management is sold to investors.  But even these articles acknowledge an important role for active management.  For example, in this paper BGI’s Barton Waring and The Ford Foundation’s Laurence Siegel say:

“We strongly believe that in the presence of skill active management can be successful. But we also believe it can be sold on its own merits without artificial arguments.”

So why not combine passive and active under one roof?  The growth of the hedge fund industry shows there is obviously a growing global demand for active management – especially among institutional investors.  Why should the largest asset manager in the world get out of the active management business?

Why, especially when Barclays Wealth (AUM: 85 billion GBP) poached Ravi Bulchandani from Morgan Stanley to be its new head of alternative investments (a new role) on the very day Barclays announced its intentions with ABN AMRO?  Barclays Wealth’s March 20 notice said:

“In this newly created role, Mr Bulchandani will develop strategy, funds research and structuring capabilities for investments in hedge funds, private equity, real estate and commodities. Barclays Wealth aims to become a leading player in these asset classes, which have been the focus of much recent financial market innovation and are an essential component of investor portfolios, offering low correlation to traditional asset classes and excellent risk-adjusted returns. Mr Bulchandani and his team will work closely with Barclays Global Investors and Barclays Capital to deliver innovative and efficient access to alternative investments for our clients.”

The notice goes on to say the Barclays Wealth has the “ambition of becoming leaders in alternative investment solutions“.  Could it be possible that Bulchandani was hired to help digest the wealth management assets of companies like ABN AMRO?

Or will short term interests trump long-term strategy as disgruntled ABN AMRO shareholders like the Children’s Investment Fund push to carve up ABN AMRO? (There’s nothing worse than disgruntled children, after all.)  Those “in the know” seem to suggest ABN AMRO was seeking a “sale or break-up” of itself.  If this sale is consumated, then why also sell it off for spare parts?

But thankfully, forward-looking ABN AMRO executives have prepared employees for just such a situation.  The firm’s recruitment webpage includes a sort of ethics-test for potential employees.  One (fictional?) scenario has the real-life CFO of the Global Clients business unit pitching the board on a proposal that would likely eradicate his own job.  FYI, the correct response is (to paraphrase only slightly): give the board the straight goods and start looking for your next gig.

Be Sociable, Share!

Leave A Reply

← Roman deity ups stake in quant manager Northwater Capital: Asset Manager 2.0? →